5 Things to Remember About Buffett's Deal With Bank of America

Warren Buffett often talks about waiting by the phone, hoping someone will call him offering a good deal to invest in. Yesterday, he did the calling, investing $5 billion in Bank of America (NYSE: BAC  ) after reaching out to CEO Brian Moynihan.

"Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it," Buffett said. "I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them."

A nice, big hug, as one analyst put it.

Here are five things to keep in mind about this deal.                                        

1. You can't get the terms he got.
B of A's stock surged as much as 25% yesterday after the deal was announced. That wasn't surprising: Buffett's stamp of approval is worth more than anyone else's.

But Buffett invested on terms you can't get. The $5 billion was done in special-issue preferred stock, with free equity warrants to boot. The risk-reward characteristics are far different than just buying common stock. By the terms of the deal, Buffett could still make a nice profit even if B of A's stock plunges. It's classic Buffett: Little downside and tremendous upside. Us mortals can hardly dream of those deals.

There may be good reasons to buy B of A stock, but "because Buffett is, too" isn't one of them. Put simply, he's not.

2. He's done it before.
Buffett invested billions in Goldman Sachs (NYSE: GS  ) and General Electric (NYSE: GE  ) in 2008 in deals structured just like yesterday's B of A transaction. The results highlight how easily Buffett can win while his lemmings lose.

With preferred stock yielding 10% and a 10% repayment premium, Buffett made about $1.2 billion on GE, and $1.7 billion on Goldman -- returns of over 30% in just over two years.

But anyone who bought GE or Goldman's stock on the day Buffett announced his deals has since lost 40% and 19% of their money, respectively.

Buffett also received warrants to purchase each companies' stock. With shares down, both sets of warrants are currently underwater. The thing is, it doesn't matter: he didn't pay anything for the warrants to begin with.

The deals Buffett strikes with these companies are basically heads he wins, tails he wins even more. Those who try to ride his coattails flip a whole different set of coins.

3. Another way to look at it: This deal could be an epic success.
Of course, B of A's common stock could surge from these prices. Just returning to book value -- still a low valuation by bank standards -- would bring shares up to around $20, from less than $8 today.

With warrants to buy 700 million shares at a strike price of $7, a move that size would net Berkshire Hathaway (NYSE: BRK-B  ) a gain of $9 billion. And that's just from the warrants; dividends and repayment premiums from the preferred stock could add up to $2 billion more over the next few years. Not bad for a deal Buffett allegedly devised in his bathtub.

4. Why did Bank of America do this deal?
Moynihan insists B of A doesn't need capital. Looking at the latest quarterly numbers, he's probably right.

So why'd he do it? Simple: to stem panic and instill confidence.

But who is he trying to placate? A plunging stock price shouldn't matter -- a bank's market cap doesn't impact its capital ratios. The problem is when a falling stock price spooks depositholders and or bondholders, causing them to flee. That's essentially what took down Bear Stearns and Lehman Brothers.

It makes me wonder: Is Moynihan just being preemptive with this deal, or did B of A start seeing deposit outflows in recent weeks as fear and panic spread? Or, perhaps a few large hedge funds pulled assets just to be safe? There's no way of knowing, but with wounds of 2008 still fresh in people's minds, it wouldn't surprise me.

(On that note: Your FDIC-backed deposits are safe at B of A.)

5. Buffett's renting his name to B of A. That could backfire.
When Goldman Sachs was mired in a fraud scandal last year, Buffett biographer Alice Schroeder argued that having Berkshire's name linked to Wall Street corruption outweighed any financial gains.

"Buffett swapped his reputation at a cheap price," she wrote. "Goldman is holding him to the deal, hanging onto the preferred stock while Buffett's reputation is still useful. It is painful to watch Buffett behaving like a hostage to Wall Street, damaging himself by defending investment banks and saying flattering things about Goldman in a way that contradicts any principled view of the securities business."

Something similar could happen with B of A. Most of the bank's problems surround how its Countrywide unit bamboozled borrowers and flubbed foreclosures. It's Wall Street plundering Main Street -- an emotional topic for many.

Having Buffett's name linked to those allegations could ding his reputation of being an ethical bastion. B of A wins by being associated with Buffett. Buffett has to be careful that he doesn't lose by being associated with B of A.

What do you think? Share your thoughts in the comments below.

Fool contributor Morgan Housel owns B of A preferred and Berkshire Hathaway. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Bank of America and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 26, 2011, at 12:31 PM, mikecart1 wrote:

    BAC is going to rise to new heights in the future not because of Warren Buffet, but because BAC is the greatest bank no this planet. They have the best brick & mortar buildings, the best customer service, the best credit card offerings with huge cash back, the best rates, the best account options, the best website, the best potential, and the name is Bank of America. Do you bet against other American names? I don't think so! America is #1 and so is its greatest Bank!

    Cheers!!!

    Disclaimer: mikecart1 owns a ton of BAC shares at $3/share from 2009 and has not sold a single share.

  • Report this Comment On August 26, 2011, at 12:48 PM, skippyfx wrote:

    Haha, I love the enthusiasm mikecart1.

  • Report this Comment On August 26, 2011, at 12:54 PM, jazzrick wrote:

    Wow, Mike loves B of A! I use B of A for my business accounts, and our mortgage. They do well for me.

    I bought into BAC before I knew about the great Oracle investing into it. I know BAC will come out of this just fine, and I expect a great return in the future. I'm in this for the long term. The bank is too big, too powerful, and has enough cash already to weather this storm.

  • Report this Comment On August 26, 2011, at 12:58 PM, smokyfied wrote:

    mikecart1 - you forgot to mention that the cheerleader's uniforms are red, white and blue! Obviously, you have never been a BofA customer. I have for years and think that their service and product offerings suck! It is just such a big pain to switch, but I did open a chase account recently to evaluate the possibilities.

  • Report this Comment On August 26, 2011, at 12:59 PM, RaulChapin wrote:

    Thank you for a great article Morgan.

    I have been thinking banks for a while, Annand Chokkavelu had presented a few that were interesting to look at, and BAC seemed like an option with lots of upside... but I thought, lets not rush in.

    So when I saw that Buffet had gotten a deal again... I wanted to kick myself for not having jumped in on the BAC wagon BEFORE Buffet...

    This article helps me remember that the Buffet seal of approval is not a Buffet seal of approval on common shares :)

  • Report this Comment On August 26, 2011, at 1:34 PM, slpmn wrote:

    Great article. It is so important to look past the headlines. The fact that Buffet did NOT buy BAC common stock says all you need to know about what he thinks about that particular investment.

    He structured the deal to receive the benefits of common equity without the risk. He gets a guaranteed dividend that gets paid regardless of what BAC does with its common dividend, he gets a far more attractive yield (who wouldn't love 6% in this market?) and with the warrants, he benefits from any appreciation in the value of the common. We would all jump on those terms in a heartbeat.

    This is a classic example of how individual investors operate on a different playing field than the real players, and should be noted as such.

    My only side comment is that those warrants were not "free". They are part of what he is buying for $5 billion.

  • Report this Comment On August 26, 2011, at 1:42 PM, ViDLuV wrote:

    Never had BoA accounts, but i like Wells Fargo. They have been a good back for the past 15 yrs to us.

  • Report this Comment On August 26, 2011, at 1:53 PM, delu723 wrote:

    Sounds like good reasons to own Berkshire Hathaway ........

  • Report this Comment On August 26, 2011, at 1:58 PM, MaxTheTerrible wrote:

    It just amazes me that he was able to negotiate these terms.

    Think of the Buffett deal this way, it is like for you and me to invest $5,000 in preferred shares (with repayment premium to boot) yielding 6% and get free warrants for 700 common shares, would you do it?

    Ahhh, I dare to dream...

  • Report this Comment On August 26, 2011, at 2:26 PM, AaronRogers wrote:

    Wake up BAC lovers and or pushers/pumpers. I still have BAC as an outperform but now I am uncertain. No matter how you slice it this deal is awful for shareholders of BAC. Obviously BAC does not care that much about them anyways as the share count is so high the board and CEO can basically do as they wish because who could possibly organize any type of shareholder revolt.

    First off- BAC has the capacity to borrow at next to nothing levels but now they are paying 6%. 6 is a huge percent. What product does BAC offer that enables that type of loan because thats basically what a preferred share is (quasi bond/share etc..). Not mortgages, maybe business loans, not car loans, not student loans, maybe credit cards. Or they could have borrowed money from other banks or the fed at like.25 or customers at less than 1 (cd's).

    What should be asked is what is this money being used for since its not loans? Is it for cap ex build outs of new branches. If so, are they really going to gain more market share that way and aren't there better sources. Is the funding for Buy outs? Ahhh maybe this would be worthwhile.

    Or is this money for stabilization? Uh OH. STABILIZATION. that would be gigantic. This would mean everything is a farse and there is some new accounting trick (like the swap rule or whatever employed by Lehman) and everyone is in for a huge farse.

    If BAC is as solid as they say then things would playout just fine and the stock would fix. Nobody is out there making run on the banks. If they are losing deposits its because there service isn't up to snuff and the competitors are doing better period. No one has discussed runs or even close. However people have discussed that BAC exposure to mortgages is much larger than we know. People have discussed exposure to Europe and much higher then they report.

    Smoke means fire. Buffett is just as susceptable to lies as anyone. Soloman, Wells, and many others. Don't forget Bershire is a bankrupt textile mill. Buffet is the man but he's not perfect in his selections either. His preferred means if BAC goes down he will be fine as the value appears to be able to cover him but as to you share holders use your head. This is either stupid or a cover up. Dilutionary so friggin Dilutionary. 7.14. How many warrants and how dilutionary. They are already in the money.

  • Report this Comment On August 26, 2011, at 4:29 PM, xjp83x wrote:

    One of the best articles ever read in Fool.com

  • Report this Comment On August 26, 2011, at 4:51 PM, WestBend1 wrote:

    Aaron Rogers might be on to something. My first reaction to this was that Buffet was trying to get a bigger yield than 6%, but instead of getting the bigger yield, he received the warrants.

    It worries me that BAC coundn't negotiate a better deal.

  • Report this Comment On August 26, 2011, at 4:55 PM, PSU69 wrote:

    BoA? No thanks.

    So many other bargains not being manipulated against the stockholders.

  • Report this Comment On August 26, 2011, at 8:30 PM, TopAustrianFool wrote:

    I appreciate the BoA enthusiasm but banks are extremely complex businesses and highly regulated. It is impossible to really understand any banks business. There is so much going on with govt deals, Fed deals, you know the fascism everyone calls "cronnie capitalism" that is hidden from the general public and they are not require to report. I am sure Buffett does get this info, but no one in this blog or TMF does. So you really don't know enough to form an opinion on any bank. I recommend to stay away. And BRK is starting to be one of those stock you should stay away too.

  • Report this Comment On August 26, 2011, at 8:42 PM, TopAustrianFool wrote:

    Aaron Rodgers,

    You ask: "What should be asked is what is this money being used for since its not loans?"

    BAC and every other bank with deposits in the Fed have been receiving bailouts on a monthly basis to hold the crappy, toxic assetts they had in their books. With the end of QE2, the Fed cash stream dried up and now Buffett has obviously given them some money to buy some time.

    The Fed is currently trying to figure out how they are going to unload all of those toxic assetts at this moment. They are trying to come up with some crazy schemes to unload the toxemia unto private investors. The only way this will be done is by some sort of money laundering where the govt gives some money to such private investors, in some form to hide it from the public.

    Kind of what was done to repay the bail outs. The Fed gave the banks super low interest loans in some govt program for small businesses and then the banks used it to pay back the govt.

    The govt turned around and claimed they actually made money on the deal. The fascism loving main stream media loved it and publicized the genious behind the deal. See, govt does work.

  • Report this Comment On August 26, 2011, at 8:43 PM, TopAustrianFool wrote:

    "Or is this money for stabilization? Uh OH. STABILIZATION. that would be gigantic. This would mean everything is a farse and there is some new accounting trick (like the swap rule or whatever employed by Lehman) and everyone is in for a huge farse. "

    exactly...

  • Report this Comment On August 26, 2011, at 9:01 PM, TopAustrianFool wrote:

    "With preferred stock yielding 10% and a 10% repayment premium, Buffett made about $1.2 billion on GE, and $1.7 billion on Goldman -- returns of over 30% in just over two years.

    But anyone who bought GE or Goldman's stock on the day Buffett announced his deals has since lost 40% and 19% of their money, respectively."

    Hell, where did you think the money to pay cronnie Buffett comes from?

    This is the same guy who claims he should be paying more taxes, therefore govt should increase taxes to everyone, while at the same time taking his pay in capital gains to pay 15% tax rate and avoid the 35% income tax rate. Which he claims should be raised to 39%. Well, Warren, you are still going to pay the 15% rate.

    I would stay away from anything this guy touches.

  • Report this Comment On August 26, 2011, at 9:44 PM, RetroAlum wrote:

    +1 on the "Propping Up"... I've done business with BoA grudgingly, as they have neither the ethics nor customer service to warrant my trust.

    Between Countrywide, and their tight-fisted loan practices, the aforementioned cheerleaders could be excused for wearing bags over their heads.

    Buffet's involvement may be better than a bailout, but I agree with Ms. Schroeder's sentiments: it soils his hands.

    p.s.- Their website is a glitzy, bureaucratic mess, guarded by "security theater". No thanks.

  • Report this Comment On August 27, 2011, at 3:34 AM, Braskey1 wrote:

    I feel obligated say that I don't think WB is disingenuous when he says that he and other extremely wealthy people should be taxed higher. He didn't say "raise the income tax" that would be ludicrous. His whole point is that he and other very wealthy people are not impacted significantly by income tax rates.

    In France, The ultra wealthy are voluntarily instituting a tax which amounts to donating massive amounts of money to the government to help out. They also have a 'wealth tax' which helps to ensure that capital is fluid instead of amassing in enormous sums. I'm not a huge fan of Fr. but it is an interesting idea.

    As far as staying away from anything he touches, well- lets just say his record speaks for itself.

  • Report this Comment On August 27, 2011, at 4:15 AM, lazytype wrote:

    Guys, this is one scary news. Right in front of you.

    It says interbank borrowing has died ! Euribor OIS swap rates are at record levels!

    It means credit contraction, liquidating assets.

    Same as 2008r only worse.. The big short.

    Buffet will be fine, he's not using leverage and can wait. Others will experience margin calls and panic.

  • Report this Comment On August 27, 2011, at 7:39 AM, TopAustrianFool wrote:

    "As far as staying away from anything he touches, well- lets just say his record speaks for itself."

    He is not the same man who put together that record. He is showing signs of complacency. I hope I am wrong.

  • Report this Comment On August 27, 2011, at 11:59 AM, Jeffrey526 wrote:

    So, educated ones - why isn't this considered "market fixing for ONES own" don't we frown on it when others try to manipulate the market?

  • Report this Comment On August 27, 2011, at 12:17 PM, Gorm wrote:

    BAC is a LOSER!

    Management (loosely used term) has involved the company is one blunder after another. Yes, it has a terrific geographic footprint. Adding ML seemed like a match made in heaven, but at what cost (and I don't just mean the premium paid.)?

    Merril Lynch and Countrywide deals show management is incapable of due diligence, valuation, any understanding of risk exposure, etc.

    I can remember buying KMart for $.88 when they had a book value well over $8. Still the courts bankrupt them, screwing bondholders, and "giving" the assets to Sears, which sustained them for years selling off KMart real estate to the big box stores. So don't bet on book!!

    The Fed didn't deny BAC permission to up dividends for good reason. Who knows what exposures BAC faces. What are their assets worth? How much gamesmanship is involved in just keeping their doors open, avoiding another financial panic?

    BAC is a fool's bet!

    Gorm

  • Report this Comment On August 27, 2011, at 12:22 PM, interdependent wrote:

    I joined a local credit union. Very happy.

    The real reason B of A matters to all of us right now is because it's so very big that they can threaten the world economy. They matter because they scare us. Personally I'm not going to let them use my money to create the next catastrophe.

    Mega-banks failed.

    Only enforcing regulations, breaking them up, teaching them how to invest my money the way my credit union does, will keep these profit-devouring mammoths from extinction. And since that HASN'T happened since 2008, I don't think we'll ever see them disciplined properly. Do you?

  • Report this Comment On August 27, 2011, at 12:42 PM, HarryCarysGhost wrote:

    "I joined a local credit union. Very happy."

    Nice Man, I love my credit union, HATE big banks!

  • Report this Comment On August 27, 2011, at 12:47 PM, topbeancounter wrote:

    You all are missing the point. B of A has proven it doesn't know how to manage. They let the top operations folks at Countrywide escape, thinking they could put in a credit card manager to run a mortgage operation. They are inept and have continue to prove it by forcing out Mr. Lewis, who mught have succeeded if left alone.

    although top management continued to crow that they did not need to go to the public to raise new capital, the government was behind the scenes ordering them to divest themselves of hundreds of thousands of loans. Bet you didn't read that anywhere did you? Instead of coming clean, Mr. Buffet smelled oppportunity and invested on rediculous terms, if you are current shareholder.

    The bank can't go up much with all that potential dilution out there just waiting to have all those warrents converted at $7 per share (or any other amount).

    When are they going to throw the bums out and get this bank back into telling the truth? I fiinally sold out int he $8 range, but I too was in at $3+.

  • Report this Comment On August 27, 2011, at 1:00 PM, jc09058 wrote:

    Very interesting article about a variety of reason why Mr. Buffett invest in BofA. Aside from the comments about BofA, I was hoping for a little more discussion about why Mr. Buffett made this play.

    Consider, the events that were occurring at the time of GS and GE plays. Both of those were not only to make a lot money for Berkshire, but acted as a major stabilizing influence in the financial sector and on the market in general. I do feel that there is a political motivation behind this as well, but the primary thing was to stabilize the market and to get people thinking instead of reacting.

    Once again, Mr. Buffett is making another big play in the financial sector for a lot of money in future earnings. Why? BofA says they are in good share and didn't really need the money. OK but consider all of the news about the Fed and that while they have things that they can do to help, all of the big hammers to tweak the economy have been used with little to no effect. Now the Fed is telling the President and Congress it's up to them to do something to help simulate the economy.

    After the last little venture by Congress to see about raising the Debt ceiling, I don't have much faith in the Government being able to think itself into a way to help things along with our economy without partisan politics making things even worse. I think some more responsible individuals, outside of the government, need to do something instead. So, who's got the money necessary and the ability to make things happen? Businesses of all sizes.

    As investors, we all profit from a market that has a degree of stability without outright panic. We are used to fluctuations occurring but we have been too long in a market where panic has been the major mode of thinking. Constant reiteration of the same bad news, repeated every 15 minutes, by talking heads and news organizations have done nothing to help. In fact, they have made sure that it continues.

    Enough please, can we start having those people starting talking and printing about solid ways, not theories, to restart the economy? We know it's bad already, let's start hearing about those that are doing something at the local/regional level that's good and doing something positive.

    Oh, wait, isn't that what Mr. Buffett did? He invests in a company where he could make good money, helps add a little calm to the calamity and maybe help stabilize the market some. Make no mistake, each investment he was involved in was done at exactly the right time, to make the right amount of money and to influence the market fears in a more positive way.

  • Report this Comment On August 27, 2011, at 2:18 PM, NextStopParadise wrote:

    I have trouble believing Mr. Buffett has altruism in mind when making such an investment, and that his goal is to stabilize the market unless that outcome benefits him. He moves only when he believes he can turn his billions into even more billions, and he plays the game better than anyone.

    My question is, does he use any of his billions for charitable causes? Seems I never see any articles written about him as a philanthropist.

  • Report this Comment On August 27, 2011, at 2:19 PM, TMFHousel wrote:

    <<My question is, does he use any of his billions for charitable causes? Seems I never see any articles written about him as a philanthropist.>>

    He's donated most of his net worth to charity. He's one of the largest philanthropists of all time.

  • Report this Comment On August 27, 2011, at 2:45 PM, Buckeye46 wrote:

    No B of A for me. And anything WB does has no bearing in reality for a small investor. Oh, any friend of obama is an enemy of mine.

  • Report this Comment On August 27, 2011, at 3:13 PM, TopAustrianFool wrote:

    The people who think they can invest in the same things that WB does and make money are delusional. He has connections, has politicians in his pockets, gets special priviledges. He will make money investing in manure and he owns a lot of those too-big-too-fail that will get bail out if they fail. Remember all of those bail outs are to pay up the well connected like him, not the followers like you. He is basically the same type of rich people he himself hates and wants to tax, but he also knows will get away with paying next to nothing.

    TMF is constantly talking about transparency and at one point went to advice someone in the White House or Congress. Yet, no forcefull warnings about Mr. Buffett. Well, he may have an Omaha nickname but he seems to me like another Wall St.-DC cronnie.

  • Report this Comment On August 27, 2011, at 3:46 PM, billbro wrote:

    what would be the future for ba without the 5 billion?

  • Report this Comment On August 27, 2011, at 3:47 PM, MediaEmpyre wrote:

    Warren Buffet along with Bill Gates have pledged all of their fortunes to charity , and have publicly challenged other billionaires all over the world to do the same.

    -Doesn't stabilizing the markets help him make more money?? As he does little things to help to calm, influence and stabilize the US markets, the companies that make up the Berkshire Hathaway portfolio make more money....Mo' Money..Mo' Money..Mo' Money!!!

    -His ideas on raising taxes on the wealthy come from a study of the Great Depression, which we almost repeated. The Truman administration added to the depression by first stopping government spending and lowering taxes on the wealthy. Caused us to go further down into a recession during the thirties. The thing that pulled us out was WW2.

    -So in essence he's not a Crony of the political elite, but a shrewd businessman.

  • Report this Comment On August 27, 2011, at 3:58 PM, whatisthetruth wrote:

    bought brk not bac. missed bac by one sec. at 6.88 then it went to +8 and I proceeded to buy brk at 70. went straight down to 69.84. lol will it climb mon? I hope so.

  • Report this Comment On August 27, 2011, at 4:12 PM, promommyfool wrote:

    Preferred stocks. My grandmother used to buy those. How come nobody in here ever talks about those? Why did she never teach me anything about investing?

  • Report this Comment On August 27, 2011, at 4:28 PM, bbwinski wrote:

    I closed my BAC account because I was treated unfairly: I was a customer for over 15 years with no problems re: my balance. On the last occassion I overdue my account by fewer than $10 just hours before my SS automatic deposit would be made and was charged a fee which BAC refused to drop. I then closed my account telling the Bank Manager I would open a new account with the bank accross the street.

  • Report this Comment On August 27, 2011, at 4:39 PM, Ladydidi wrote:

    @ Braskey1 :

    Being French, living in France, I have just one thing to say :I wish you were right !

    You say "In France, The ultra wealthy are voluntarily instituting a tax which amounts to donating massive amounts of money to the government to help out."

    I think you read the news a little bit too fast.

    French 1% higher income population pays less than 14 % tax, all taxes included, as opposed to about 30% for higher middle class with no children at home.

    Mrs Bettencourt, owner of L'Oréal, who had a yearly income of 280 million euros, paid last year 40 million- after receiving a 30 millions refund from the administration because of the "fiscal shield" limiting the amount of the "wealth tax" to 50% of her "taxable income."

    ( ...although she has started to declare the few hundred millions that she had "forgotten to declare" until now. Guess how much it was before IRA inspection.)

    You say : "They also have a 'wealth tax' which helps to ensure that capital is fluid instead of amassing in enormous sums." I know about it: I pay it 0,3% of my wealth.

    Last year 1,85 % was the highest rate, for the part of your wealth above 24.24 million dollars... to be compared with 5,5% sales tax on food, paid by everyone rich or poor !

    Because of the numerous loopholes accessible only to those who can afford then (...like investing in real estate in the French Caribbean) the wealth tax is never ever paid in full by the very wealthy and, once again, only the "little rich" pay full price.

    What's more, this government has just lowered this tax, in exchange for suppressing the 50% "fiscal shield" after the "Bettencourt scandal."

    You say : "The ultra wealthy are voluntarily instituting a tax".

    No, first because only 16 of them signed this. they are the exception. The vast majority of French ultra-rich did not bother to sign.

    No because even if all of they had signed, they don't have the power to institute anything of this kind.

    No, because the new "Exceptionnal tax" is neither a real, lasting, tax, nor a return to previous income tax level.

    You say " which amounts to donating massive amounts of money to the government to help out.

    No, the "provisional tax" government has announced will bring in a total of 200 million euros, while the rest of the population will pay an extra one BILLION euros in various new taxes at the same moment.

    No, again, because these 200 million euros amount only to one third of what the administration has repaid last year because of the "fiscal shield" to ultra rich, most of them known to be eluding taxes. "

    To compare amounts, see above what one of them has received, just for 2010.

    The comment you hear on this is: "They act like nineteenth century ladies disdainfully giving their spare coins to the poor to keep social peace."

    as you see, we are quite far from you idealized views.

    I have a question:

    Why is it that on American forums people saying "I don't really appreciate France, but..." seem to talk about a "dream France" that has, in good or in bad, very little to do with reality ?

    France is like all the relatively free countries I have experienced - about 30 or so, including America, canada, all of Europe, India, Poland, Korea, Japan...

    If you belong to the 1% super-wealthy you can afford to live a great life in all of them and taxes are a minor concern, unless you are paranoid.

    As to the rest, lets say the lower 60%, they are like you and me, they worry about taxes. I wonder why.

  • Report this Comment On August 27, 2011, at 4:42 PM, mommadaisy wrote:

    I own a few shares of Berkshire B. Why doesn't Buffet pay dividends to his shareholders???

  • Report this Comment On August 27, 2011, at 4:43 PM, NotThere wrote:

    When one investigates the real estate riets and other riets areas, one sees hugh investments by BofA, other large banks and investment companies. Are these investments only fund money held?

  • Report this Comment On August 27, 2011, at 5:08 PM, beechtree1 wrote:

    yah! brk's the deal.

  • Report this Comment On August 27, 2011, at 6:06 PM, deadly11 wrote:

    The long and short of it is BAC sells for .6X book and is the second best bank franchise after WFC.

  • Report this Comment On August 27, 2011, at 6:34 PM, ajaykc wrote:

    Its plain and simple folks.

    Warren Buffet is an investor and don't see him as a guy of high morale or something. He is a businessman and he has a proven record. He is never chasing a stock at 52 week high like Jim Crammer, he is neither going after all time low stock. He is going for value and a business that he thinks will live even after all the crisis and panic. He does what he says "buy when others panic". I am sure I would like to have such deal but I can't possibly get because I am not WB.

    Ask yourself, can you wait for 2-5 or even 10 years on your investment? If yes then go with him. Don't be moralistic while investing. If you do then you will never buy apple stock or its product because they pay less than 50 cents a day in China for their labor.

    Just think if you are an investor and you will be fine. Leave the debate of morality for others.

  • Report this Comment On August 27, 2011, at 7:17 PM, Conservo wrote:

    MF has been recomending BRK/B for years, I finally sold it for a negative 25%. Buffett supports Obama, look where our country has gone the last 2 years & where it is headed. Buffett invest/supports BoA. My ML account is getting pulled next week. Not so sure where MF is guiding us?

  • Report this Comment On August 27, 2011, at 8:54 PM, jerryz11 wrote:

    Buffett used a similar strategy--preferred convertibles--on Geico and AXP earlier, and anyone who followed him into those deals would have done very well by now. One thing we need to keep in mind is that Buffett has a very long time horizon (10 yr warrants for BAC) for his investments, so it's unfair to judge his success in a short time frame (or others who monkey him).

    For Buffett, it's an extremely low (or no) risk and high return investment because BAC is an incredibly cheap stock on a fundamental basis and he's covered on the downside regardless of how BAC performs.

    BAC was and still is dirt cheap: its global commercial banking and wealth management divisions (old Merril Lynch) alone had $45B in rev and $8B in profit in2010 (2009 numbers were even higher), a reasonable estimate would give it a market value anywhere between $60B and $100B, against a market cap of $70B for BAC; that means you pay a good price for those two divisions and get the #1 deposit base + mortgage business + card business thrown in for free. It's also cheap considering its pretax preprovision profit is $2.4 per share TTM, and its normalized earning power is nearly $2 per share after tax (or 3-4 x PE).

    Moynihan has been doing some right things, but turning around a ship as big as BAC takes time. And lots of bad things can happen as well. Buffett's vote of confidene will surely help the management focus on the right things and ignore the market's craziness. So given enough time, patient shareholders of BAc will be richly rewarded. Buffett will certainly be one of those. In the meantime, its share will fluctuate, just like everything else on the market.

    So if you want to follow Buffett into BAC, you have to understand three things: 1) you know and are comfortable with BAC's business prospect, 2) you have to be very patient and ready for a bumpy ride, and 3) most likely you won't get a deal as sweet as Buffett's. If you think financials are way undervalued (as I believe) and don't want to take on the extra risk of BAC, there are other safer places to put your money (e.g., WFC, USB).

  • Report this Comment On August 27, 2011, at 11:06 PM, CHUCK423 wrote:

    Call me a fool but I bought b4 Buffett. I just couldn't stand to see the stock price at cash value. That is, the value of the stock represents what BA has in cash. I bought 200 shares at $6.90. That is better that Buffett's option. Of course when I did that, he called me for advise. Ha Ha. Anyway I have a little profit so far. I think it goes to $10.00 and then I will bail.

  • Report this Comment On August 27, 2011, at 11:15 PM, zzquilt2 wrote:

    I don't believe that BofA had to buy Countrywide. But I do wonder what would have happened if they hadn't. I think that the mortgage/housing crisis would have been far worse than it has been. I believe that the Buffet/BofA deal will be good for all.

  • Report this Comment On August 28, 2011, at 1:56 AM, ajaykc wrote:

    I bought few call options when BofA was around $6.5 on wednesday and I heard Dick Bove pounding the table. I usually don't listen to him but he was right on when he said a month ago to sell everything and buy BofA on this Tuesday. I just got lucky I guess but if it is not 2008 which I believe it is not, then BofA is extremely undervalued. At around $7 which is double the price compared to all time low of $3.6, I am a buyer and I wish I had more money and deafness to ignore the wallst noise.

    Take the lesson from BP experience when Wallstreet was scaring that it will go bankrupt and scared people to sell at $26-27 and look what happened six month/year later.

  • Report this Comment On August 28, 2011, at 6:18 AM, chrone2 wrote:

    Can't beat my lovely little Credit Union! BOA had too many fees and too little care for the customer. Closed those accounts long ago.

  • Report this Comment On August 28, 2011, at 8:41 AM, Sharky409 wrote:

    In for the long run. Good luck.

    If you bought BAC summer of 2007 U paid $49 sh.

    If you sell now U sell for less then $8 sh.

    In for the long run.

  • Report this Comment On August 28, 2011, at 10:54 AM, joeblou wrote:

    It takes years for a bubble to deflate(banking) and bac has to live with lower returns and large continuing losses as all those bankrupt homes come back on the books.

    The public wants blood and it looks like a wash out will provide it. How much does wb know from owning wfc that caused him to know he could get such a deal.

    Wb is right about the rich needing to pay more it is true in so many nations. Surely it will not come to another 1917 Russia type event. Looks like the gop could raise taxes under handedly.

    Wb only donates as long as he never has to let go of control of the money.

  • Report this Comment On August 28, 2011, at 3:23 PM, beechtree1 wrote:

    Like the man said: buy BRK shares. At the moment

    they sell at book value. WB's making money for the company, sooner or later the market will see it.

  • Report this Comment On August 29, 2011, at 3:36 PM, reflector wrote:

    "(On that note: Your FDIC-backed deposits are safe at B of A.)"

    morgan, i would disagree with this.

    setting aside the insolvency of the federal government, let's just assume they will come through for you in a pinch, which may or may not be true in the coming years.

    but the real issue is, money you have in a bank will be earning you zero interest, or close to zero, in the best case, and more likely, they will be charging you fees, like "account maintenance fee" or something like that.

    so your money is getting zero percent, meanwhile, inflation is eating away at your hard earned cash.

    here's a little chart listing how your money would have done from a year ago if you had put it into various vehicles:

    http://finviz.com/futures_performance.ashx?v=16

    if you'd bought $100 silver a year ago it'd be worth $216 today.

    if you'd bought $100 in swiss francs, it'd be worth $126 today.

    if you'd bought $100 in wheat futures, it'd be worth $114 today.

    in very last place of course, it you'd kept your $100 in us dollars, it'd be worth $89 today.

    in this inflationary environment, brought to you by the fed, keeping cash at a bank is a surefire way to lose money.

  • Report this Comment On August 29, 2011, at 3:44 PM, hveagle wrote:

    Articles/comment threads like this one are why I read Fool on a regular basis.

  • Report this Comment On August 31, 2011, at 2:38 AM, PeakOilBill wrote:

    The FDIC limit is $250,000 per account. Satyajit Das sees the possibility of a new banking crisis developing. If banks need another bailout, they may not get it, without the shareholders getting wiped out by Congress, unless they want an independent Tea Party President.

  • Report this Comment On September 01, 2011, at 1:23 AM, polenium wrote:

    Bank of America is not so much a financial institution as a criminal conspiracy. Buffet is in his dotage. No one, not even Buffet can figure out B of A's books. Add to that the Countrywide Crime Syndicate that they sucked up and you have a really lousy investment.

  • Report this Comment On September 02, 2011, at 10:54 AM, buddyleo wrote:

    Do people really believe BOA cares about their customers? I had a credit card with them for 15 years and one day recently they decided to charge a $69.00 fee for the same service. I cancelled and got another card through them without a fee after I picked the brain of their customer service rep. Yesterday I received a letter with deceiving info to join their credit protection plan. If one wasn't very knowledgable you would believe that it was illegal to not choose their fee based plan. I'm amazed that anyone has "good feelings" about this greedy corporate entity.

  • Report this Comment On September 02, 2011, at 1:43 PM, car1020 wrote:

    I am quite certain Buffett made this move to make money! I wouldn't touch BofA with a ten foot pole and if/when banks fail, again, it will be the first at the door of bankruptcy. Their ratings are terrible and if you have been in their doors for any reason, they operate on a shoestring and have low paid employees who don't know what a shoestring is. And this is Dallas, TX!

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